Good News For Public Sector Sub-Contractors
As the newest budget was unveiled by Alistair Darling in March, the bulk of the country was browsing at the impact it would have on our jobs, on our taxes, our schooling and health systems and our own individual spending patterns. There was one particular step launched as part of the 2010 budget which many of us will not have noticed though. This article seeks to shed light on some of the details of this fresh initiative.
The announcement is in regard to fair payment within the public sector industry, with particular focus on contractors and subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a division in the public segment will have a legal responsibility to pay their own sub-contractors inside of 30 days.
It is worth noting that the 30 day clause does not apply to payments by the governmental departments to 1st tier contractors, but to those first tier contractors making prompt payments to lower tier contractors that they are hiring themselves. However, all central government departments now have to pay 80 percent of any undisputed invoices for goods or services inside of 5 days.
Why It’s Being Done
This step has been taken as one element of an attempt to improve the timeliness of payments coming from public segment jobs up and down the supply chain. Public segment work has a good reputation for the prompt payment of accounts at the higher levels of sub-contracted work, however this benefit has not always been felt by sub-contractors that are two or three levels of separation from the initial payment.
When viewed as part of the larger picture, this payment move is being employed to try to help the numbers of small and medium sized businesses (SMEs) that operate in this nation. As we experience the end of the latest recession, many businesses both large and small have experienced the strain. Just surviving until now in the current economic circumstances has been an accomplishment for many. The government is now seeking to make sure that it can assist as many of these enterprises as possible.
To help these companies control their cash flow more effectively, suppliers to the public sector are being paid faster than has ever before been the case. 19 out of 20 bills to central government departments from primary contractors are being paid within 10 days.
A public sector corporation considering any kind of commercial office fit out should now adapt deals for any contractors they will hire.
Who It Affects
The fresh ruling will impact any contractors and sub-contractors all through the supply chain on works for all government departments, government agencies and NDPBs (non-departmental public bodies). It is designed to help the sub-contractors further down the chain rather than offering rewards only to the primary contractors at the higer levels. The 30 day payment condition is only relevant to any new contracts for work and doesn’t need to be used retrospectively.
Who It Doesn’t Affect
The 30 day payment system is only relevant to personnel in the supply sequence for public segment projects and isn’t part of common business law. It therefore does not affect any companies in the private sector. Because the measure doesn’t have to be placed on to existing agreements, several of the works for the 2012 Olympic Games will not be forced to follow the program.
What It Means For Business
What this step should signify for small companies that are engaged with public sector projects is an improvement in the pace with which they receive payment for their performance. Whilst some repayment procedures have been recognised to contain range with regard to certain “bending” of the rules, this fresh scheme does appear to be much more rigorous in terms of delivering on its possibilities. At least it seems that way so far.
It will naturally mean that public segment contracts can no longer be received by main contractors that don’t agree to the 30 day payment clause. Further than this, the swiftness of payments all the way down the supply chain could turn out to be a factor when deciding which contractors will be chosen. The government are positively encouraging their main building contractors to pay 2nd and third tier firms before the 30 day deadline is up, which can see contractors making use of speed of payments as one part of their own proposals.
The fresh payment measures do not have to be put on to any existing contracts that the governmental departments in question currently have. This particular fact may help to lessen the period of time put in on adjusting these contracts and keep the paperwork necessary to a minimum, and it ought to enable the new system to come into practice much more smoothly.
Many tiers of sub-contractors are required in building fit outs because utilities have got to be set up in the architectural work and furnishings.
The new commitments to faster payments throughout the supply chain is a sister measure to other policies and acts that are being implemented in order to encourage a fairer working environment up and down the supply chain.
Fair Payment Charter
The Fair Payment Charter is part of a bigger instruction developed by the Office for Government Commerce (OGC) designed to promote the very best “fair payment” procedures for businesses working in the realm of public sector works. The terms set down by this charter came into force from the 1st January 2008 directed at all contracts in the public segment.
This charter is by no means a legally binding document, and it does not supersede any conditions laid out by particular workers’ deals. It is simply a document that sets out a number of responsibilities that are hoped to be adopted throughout the industry. A few of the principal points in the charter are the swiftness and correctness of payments that are made, that the payment process ought to be clear up and down the supply string and that all points in the supply chain should work jointly to help appropriate cash flows at many levels.
Prompt Payment Code
The Prompt Payment Code is another move that is geared towards helping small and medium size firms, particularly in terms of their cash flow. It has been created by the Government, with assistance from the Institute of Credit Management (ICM) and encourages the adoption of best payment practices and transparency for any agency that adopts it.
Once again, this code is not a legally binding document and doesn’t outrank any stipulations of working agreements between businesses and individuals. It’s a guide for businesses that sets out a standard collection of fair payment procedures developed to assist all members working inside the public segment. As well as timely and fair payments, it also lays out guidelines for the dispute of invoices and any complaints raised by suppliers.
Firms that sign up to the code have to undergo an application procedure which establishes if they have suitable measures in place to comply with the recommendations set out in the code. After they have passed all these assessments they can then show the PPC logo on their own company brochures and website as a sign of their commitment to working inside of a fair payment environment. This gives a great opinion of the company, that may be crucial in the course of tough economic periods.
The stipulations will have an effect on many companies performing refurbishments on offices built for organisations working in the public industry.
Implementation Of The Code
The exact wording that should be adopted by organisations operating in the public segment can be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. “Where the Contractor enters into a sub-contract with a supplier or contractor for the purpose of performing its obligations under the Contract, it shall ensure that a provision is included in such a sub-contract which requires payment to be made of all sums due by the Contractor to the sub-contractor within a specified period not exceeding 30 days from the receipt of a valid invoice.”
The OGC would like firms to follow the contract models that it has developed as a system of best practice. This does not necessarily imply that they have to be followed word for word in every circumstance, since every organisation is unique and works under a distinctive set of circumstances. By making public sector companies adopt just the prompt payment clause set out above an industry-wide system can be unveiled without compromising the versatility to set out section specific terms and conditions.
Political Impact
As with any kind of program introduced by Government there is actually a certain amount of political maneuvering that happens. Whilst all parts of the political spectrum can agree that there’s a crucial need for fair payment within the public segment, there are still a number of further actions that may be undertaken that can be used by all parties to promote their own campaigns. This is even more apparent during an election year.
David Cameron and the Tory party have recently created a promise to tackle unfair pay within the public segment. The plan will implement a wide sweep of pay cuts across the senior workers within the public sector by associating the particular pay grades of the senior personnel to the lowest paid employees inside of their organisation. A fair pay assessment would happen with the primary objective of establishing a 20-fold pay scale, so a senior worker couldn’t earn more than 20 times what the lowest paid staff member does.
Although Cameron recognises that there’s currently a commitment to pay transparency, fairness and speed, he also says that “it is time to go further.” The party head claims that by tackling the issue of fair pay within the public sector is an illustration of just how his party has become the most progressive party in the United kingdom and should go some way to dismiss the traditional prejudices associated with the Conservative party. He also makes use of the measures to release an attack on the Labour party, proclaiming that they are a government beyond their sell-by date.
This entry was posted on Wednesday, September 1st, 2010 at 3:55 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.